Expanded Investment Possibilities Within Your 401(k)February 13, 2017

Did you know your 401(k) retirement plan offers a brokerage window for you to take advantage of broader investment options than your traditional 401(k) plan? Brokerage windows give 401(k) contributors investment opportunities beyond the traditional retirement fund options offered by their plan. Brokerage windows can be a good way to optimize asset class diversification, integrate the highest quality funds into your portfolio, and potentially boost your retirement accumulation and income goals. About one in five retirement plans offer a brokerage window feature.

Why Go Outside Your Plan’s Core Options?

It’s important to understand whether or not you can meet your investment or retirement objectives with your 401(k) plan’s core options. Typical retirement plans offer between 15 – 25 different investment options. Over the past 15 years, we’ve seen pilot retirement plans offer traditional stock and bond funds. Not seen in the plans are complements to these funds, such as alternative investments which typically don’t correlate to the stock or bond markets: commodity exposure, real estate, emerging markets or international bonds. With some investment experts calling for muted returns for the next decade, exposure to non-correlated asset classes could be an advantage. Using the brokerage window can give you more options and control.

Using the Brokerage Window Feature

Selecting investments outside of your core retirement plan funds can be risky. It’s important to ask questions and have a plan before using the brokerage window feature. When planning, consider the amount of money you’ll need to save while you’re still working, in order to meet your retirement goals. Also account for legacy goals, such as: what you value, how you prioritize goals and whether you’d like to leave an inheritance to family or charity. This will help you determine if your current pre-retirement habits match your future retirement goals.

Before selecting investments on behalf of our clients, we make sure to understand their individual investment objectives and risk tolerance level. We use tools to run “ideal” and “acceptable” investment scenarios that meet the specific retirement needs and objectives of each pilot. We work with clients to build a workable investment strategy and then make the appropriate asset allocation decisions, taking full advantage of the brokerage window.

Managing Your Brokerage Window Selections

After selecting funds or investments via the brokerage window to fit a client’s asset allocation, we then add value by automatically rebalancing the portfolios based on an individual investment strategy. Our automated system, which is linked to each brokerage account, keeps each retirement plan balanced. People are busy; they don’t always know when to make trades and rebalance. That is why we offer it as part of our service.

Our rebalancing decisions are based on research and our understanding of the valuation and risk inherent in asset classes and their market segments over time. Our investment philosophy couples the selection of active and passive investment managers and a client’s desired outcome. This is done with strategic asset allocation combined with a tactical overlay. This overlay is a valuable tool because it allows us to make changes in over or underweight exposure to asset classes and/or managers we believe have value.

Transitioning to Retirement

An overriding investment strategy and financial plan are essential when planning your retirement. A plan should consider the income one needs to accumulate pre-retirement, in addition to meeting one’s strategies and goals during retirement. Following a plan can help you stay on track for retirement and limit short-term and emotional decisions.

The bottom line is this: The more investment choices your plan can offer you, the more advantages you have when building your strategy and plan. But they are not without some risk. Before taking advantage of the brokerage window in your 401(k) plan, be sure to understand how any investment decision you make will impact your financial plan.

The information contained herein is for informational purposes only and is not reasonably sufficient upon which to base an investment decision and should not be considered a recommendation to purchase or sell any particular fund, security or strategy. Certain investments, including “alternative” investments, may involve a substantial degree of risk. Past performance does not guarantee future results and, as with any investment, there is a possibility of loss of principal.